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  1. Environmental and Economic Effects of CO2-related Vehicle Taxation in Germany Adamos Adamoua,b, Sofronis Cleridesa & Theodoros Zachariadisb a Dept. of Economics, University of Cyprus b Dept. of Environmental Management, Cyprus University of Technology 34th IAEE International Conference Stockholm, June 2011

  2. Background • Transportation is globally the largest final energy consuming sector • Share in energy use and GHG emissions projected to increase in the future (mainly in non-OECD) • Deep transport CO2 reductions required in order to meet the global 2-degrees stabilization target • It may take time for biofuels and new technologies (hybrids, fuel cells etc.) to be effective fleet-wide • Basic policies discussed: • Fuel taxes • Fuel economy / CO2 emission standards

  3. CO2-Related Vehicle Taxation • Promoted recently by many OECD countries • Registration tax and/or annual road tax calculated on the basis of a car’s CO2 emission level (instead of engine size / vehicle price / fuel type) • Objective: To encourage the purchase of low-CO2 cars without mandatory regulations, and avoiding political problems and negative repercussions associated with increasing fuel taxation • If tax rate per g/km CO2 is constant: equal marginal compliance cost – could be efficient solution • Little empirical analysis so far; such tax schemes risk running out of money (e.g. Netherlands, France, Ireland)

  4. Our Modelling Approach – 1 • Discrete-choice consumer demand model for differentiated products (automobiles) • Structural estimation of demand by heterogenous consumers with Nested Multinomial Logit model (Berry S., Rand Journal of Economics 25, 242–262) • NML model relatively simple, allows for linear estimation techniques for multiple policy simulations without large computational burden (compared to random coefficients model of Berry, Levinsohn & Pakes, Econometrica 63, 841–889) • With this model we estimate consumer welfare, public revenues, firm markups and CO2 emissions in the automobile market of a country in a given year

  5. Our Modelling Approach – 2 • Consumer utility of buying an automobile depends on its price, observed characteristics (e.g. engine size) and unobserved characteristics. • Products grouped in different categories within one or more nests; nest comprises several categories of cars grouped according to body type and engine size. Consumers are identical within each group but different from one group to another. • Supply side: Profit maximization of the firm • After estimating demand & supply we simulate changes in tax regime  changes in retail prices and demand by automobile category  changes in consumer welfare, firm markups, public revenues & CO2 emissions

  6. Data • Automotive data obtained from ‘JATO Dynamics’ after a tender process • Coverage: 9 EU countries (AT, BE, DE, DK, GR, IT, NL, PT, ES), period: 19982008 • Dataset includes following variables:

  7. CO2 Emissions Distribution of Cars Sold inGermany in Year 2008 Market segment ‘Lower medium-sized cars’ Market segment ‘Upper medium-sized cars’

  8. ‘Feebate’ Policy Simulations for Germany • Tax/rebate per vehicle sold according to formula: T = αx (CO2 – PP) • T in € , α in € per g/km • Scenarios for α = 15, 30, 45, 60 (corresponding to carbon taxes of 75300 € / t CO2) • Scenarios for pivot points PP = 120, 140, 160 g CO2 / km • Cars emitting above PP pay a fee; those emitting less than PPreceive a rebate • Feebate levied at consumer/producer level, passes through by 100% to retail car price

  9. Change in new car prices by engine size and emissions class

  10. Change in new car sales by engine size and emissions class

  11. Comparison of policies according to feebate stringency for a given pivot point – 1

  12. Comparison of policies according to feebate stringency for a given pivot point – 2

  13. Results – 1: Impacts on emissions, public revenues & consumer welfare

  14. Results – 2: Total economic impact(adding up changes in public revenues, firm mark-ups, consumer welfare and reduced environmental damage)

  15. Conclusions & Outlook • It is possible to design a feebate program for new automobiles that curbs carbon emissions without reducing total welfare • But needs careful design in order to account for trade-offs between environmental effectiveness, public finances and consumer/producer surplus • Future work: • Estimate automobile demand & supply and run policy simulations for other countries (not only feebates) • Perform the same policy simulations across several EU countries • Perform dynamic policy simulations (more stringent taxation year by year)